RBS-led group revises $96 billion ABN Amro bid

Cash component increased, potentially sealing outcome

By

SimonKennedy

LONDON (MarketWatch) -- A consortium led by Royal Bank of Scotland on Monday said it will raise the cash component of its 71.1 billion euro ($98 billion) bid for ABN Amro, as the trio of banks accepted that they won't be able to acquire the Dutch bank's LaSalle business.

RBS (RBS) said the consortium will bid an unchanged 38.40 euros a share, but the cash element has been raised to around 93% of the total offer, up from roughly 80%, as it seeks to upset the acquisition agreement in place between ABN Amro
ABN, +0.00%
(30110) and the U.K.'s Barclays (BARC)
BCS, +0.44%

The RBS consortium, which also includes Banco Santander
STD, +0.29%
and Fortis (000380118), said it has received assurances from ABN that the offer will be "dealt with on a level playing field" alongside the Barclays bid.

The banks have revised their offer after the Dutch Supreme Court ruled last Friday that ABN Amro could proceed with the $21 billion sale of its Chicago-based LaSalle division to Bank of America
BAC, -0.19%See archived story.

RBS had been keen to get its hands on the LaSalle business. But under the new proposal it will receive the cash from the sale of that business.

Fred Goodwin, the chief executive of RBS, also downplayed the chances of buying any parts of LaSalle from Bank of America.

"Sitting here today, to be honest I don't see that happening," he told analysts on a conference call, noting that carving up LaSalle would result in tax charges that would be a major stumbling block.

The consortium said the offer will comprise 35.60 euros in cash plus 0.296 of a new RBS share for every ABN Amro share -- valuing it 13.7% higher that the ABN Amro-Barclays agreement.

Among the other consortium members, shares in Fortis lost 1.3% and Santander edged 0.1% lower.

Analysts said the latest offer appears to put RBS and its partners back in the driving seat.

"We feel it will prove difficult for Barclays to match the 38.40 euros offered by the RBS consortium, which therefore remains the likely victor, in our view," said Bear Stearns analyst Robert Sage.

Christophe Ricetti, an analyst at Natixis Securities, added that the big cash component should make the consortium's offer particularly attractive to hedge funds, which he estimated own more than 30% of the Dutch bank.

Ball in Barclays' court

In a statement, Barclays CEO John Varley said the consortium's offer still faces considerable regulatory risk, adding that Barclays "will only proceed with this transaction on terms which produce the right results for our shareholders."

A spokesman for Barclays said it will file offer documents before the July 23 deadline set by Dutch regulators, but he wouldn't comment on whether the bank will change the terms of its offer.

One way for Barclays to raise its bid would be by pledging to sell some of ABN's assets, said Dresdner Kleinwort analyst Arturo De Frias.

Barclays could potentially try and arrange a sale of the Dutch bank's Brazilian operations, which aren't one of its core targets, but De Frias said he still doesn't think such a decision would have an impact on the final outcome.

He believes the consortium has a 75% chance of winning, while assigning a 25% probability to a counterbid, potentially from a new entrant.

RBS said it expects the deal to increase its earnings per share by 2% in 2009 and by 7% in 2010.

"From a strategic perspective, while we would have preferred to acquire LaSalle as well, the businesses we are acquiring open up many new markets and growth opportunities, enabling us to significantly accelerate our strategic development," RBS' Goodwin said in a statement.

Under the plan, RBS will take control of ABN Amro's investment-banking operations, while Santander will get the Latin American and Italian business and Fortis will take over the Dutch banking business.

The trio of banks first revealed they were interested in bidding for RBS in April, after the Dutch bank announced exclusive talks with Barclays. See timeline of the takeover battle.

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